A chargeback is the return of funds to the instrument a consumer used to make a purchase. This return is typically initiated by the consumer’s issuing bank of the instrument, and when completed, it effectively reverses the outbound movement of funds from the consumer’s bank account, credit card, or line of credit. There are many reasons a consumer may request a chargeback. Among the most common are:
- A purchased item was not received (or it took too long to arrive)
- A purchased item was significantly different than its description
- An unauthorized transaction occurred
Chargebacks are costly to merchants in multiple ways. First, there is the time involved in receiving and processing chargebacks. All of those staff hours must be paid for. Second, there is the loss of revenue, as completed sales come off the books. Third, the payment processor typically charges a fee for each returned transaction. And finally, too many chargebacks (greater than 1% of chargeback count ratio to sales count ratio and 100 or more chargebacks totaling $5,000 or more) can impact future business opportunities. The card brands may issue steep fines. Moreover, your current processor may even terminate your account, preventing you from being able to process or accept payment from any card brands.
Consequently, it’s critical to a merchant’s success to find ways to keep chargebacks low. There are a number of steps that can be taken to reduce chargebacks and none of them are difficult. A little bit of awareness and effort is all it takes.
Proven Strategies for Reducing Chargebacks
Below are 10 things you can do to keep your chargebacks to a minimum.
Take steps to reduce fraud. There is a long list of actions you can take to prevent fraud, from checking for a signature and refusing expired or altered cards in card-present transactions, to watching for orders for many of the same items, items shipped to the same address but with different billing addresses, or items shipped to the same address that are purchased with different cards in card-not-present transactions. It is crucial to learn about fraud in general and stay up-to-date on the latest information on data security.
- Deposit sales receipts promptly. Failure to deposit receipts in a timely manner can cause a chargeback for “late presentment.” But, don’t deposit sales receipts until after you have shipped the customer’s merchandise. Customers who see charges on their bank statement before the product is received may be more inclined to request a chargeback.
- Provide clear, accurate, detailed product/service descriptions and photos. The more accurately you portray your offerings, the less likely someone is to initiate a chargeback because what they received wasn’t what they expected. Ensure that things like size, shape, and functionality are clearly defined.
- Set delivery expectations properly. If it will take three weeks to deliver an item due to supply chain or other issues, notify the customer. Someone who was led to believe they would receive their product within three days and still doesn’t have it after two weeks will, understandably, be unhappy. Also, be sure to update general availability information on your website as soon as you know of changes.
- Use recognizable product names on credit card receipts and billing statements. The customer who purchases a toaster is likely to be confused if the product identifier you use is ET4SBF for “electric toaster, 4-slice, black finish.” Also, make sure that your company is easily identifiable on the receipt.
- Make your contact information easy to find. In many cases, a chargeback can be prevented if an unhappy consumer gets prompt reassurance that an issue will be resolved. Making them hunt for customer service contact information will make them much more likely to demand their money back.
- Publicize your return/exchange policies. If you haven’t made it clear that returns or exchanges must be made within 30 days, the consumer who is denied at day 45 will not be pleased and may request a chargeback.
- Be responsive and attentive. If a consumer reaches out regarding a problem with their order, respond quickly and stay engaged with the customer until the issue is fully resolved. Here again, saying, “I’ll get back to you” and then failing to do so will probably anger the customer and increase the chances of a chargeback. For problems that take longer to resolve, touching base proactively with an update — even if it is simply, “We have not been able to resolve this issue yet, but we’re still actively working on it” — will satisfy most customers and keep them from initiating a chargeback.
- Periodically assess your business operations. Is your warehouse team getting product picked, packed, and shipped in a timely manner? Is the shipper you work with moving product from dock to door with the kind of speed you and your customer would expect?
- Monitor social media. Some people will choose not to use your prominently displayed customer service phone number or email address, and will instead reach out using social media. Be sure to keep an eye on your accounts, especially since an initial question can quickly turn into an online rant if a person feels they are being ignored.
Keeping Customers and the Card Networks Happy
The time and effort you put into reducing chargebacks not only increases client satisfaction, it keeps the card brands happy as well. From your fulfillment processes to the use of cutting-edge fraud tools, it pays to be proactive in creating a positive customer experience. Plus, positive customer experiences tend to be shared, so not only do you decrease your chargebacks, you may increase brand awareness and sales as well.
If you have questions about credit card payment processing and how our solutions can help, we are happy to answer them. Contact us today.